Greenlight Capital Re Ltd. (NASDAQ:GLRE) Q1 2024 Results Conference Call May 9, 2024 9:00 AM ET
Company Participants:
– David Sigmon – General Counsel, Corporate Secretary & Chief Compliance Officer
– Greg Richardson – Executive Officer
– David Einhorn – Chairman of the Board
– Faramarz Romer – Chief Financial Officer
Operator:
Thank you for joining the Greenlight Capital Re Ltd First Quarter 2024 Earnings Conference. [Operator Instructions]. And as a reminder, this conference is being recorded. It is now my pleasure to turn the call over to David Sigmon, Greenlight Re’s General Counsel. You may begin.
David Sigmon:
Thank you, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company’s website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson, Chairman of the Board, David Einhorn, and Chief Financial Officer, Faramarz Romer. On behalf of the company, I’d like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company’s current expectations, estimates, and predictions about future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company’s filings with the SEC, including the company’s recently filed Form 10-Q for the quarter ended March 31, 2024. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg.
Greg Richardson:
Thanks, David. Good morning, everyone, and thank you for joining us today. Greenlight Re had a strong first quarter with gross written premium up 16.5% compared to the first quarter of 2023. We delivered net income of $27 million, which equates to 3.9% growth in fully diluted book value per share during the quarter or 16.5% on an annualized basis. We reported a combined ratio of 98% for the quarter, our sixth consecutive quarter of underwriting profitability. Our underwriting result includes a $10.1 million loss net of recoveries and reinstatement premiums from the tragic collapse of the Francis Scott Key Bridge in Baltimore. This equates to 6.3% combined ratio points for the quarter. Our exposure to this loss is predominantly driven by our specialty book, where we reinsure a number of cedents to provide cover to the international group. Based on an industry loss estimate of approximately $3 billion, we have assumed a full limit loss to this cover. Our net loss position benefits from excess of loss outwards reinsurance protection with additional protection still available if the industry loss estimate deteriorates. Accordingly, we expect limited variability in our loss reserve from this event. Our underwriting portfolio favors shorter-tail specialty classes such as marine, so a loss of this magnitude falls within our range of expectations despite the Baltimore bridge loss perhaps being the largest marine loss in history. We were able to absorb it during the quarter while still delivering a small underwriting profit. Moreover, we expect the marine market rates to harden as a result of this significant event. The 16.5% growth in first-quarter gross written premium was primarily driven by growth in our casualty and specialty books as we took advantage of the strong rate environment. We were pleased to grow these classes of business in an environment where signings were competitive. During the first quarter, we non-renewed a homeowner’s quota share contract due to its exposure to U.S. convective storm risk. Excluding this contract, we also grew our property book during the quarter since we believe property cat pricing continues to be attractive. Moving to April 1, 2024, renewal season. We saw similar trends to January 1 renewals with some premium growth year-on-year. The rating environment is broadly flat to down a few points, but in general, market discipline remains strong. We write a small Japanese property cat book at April 1, 2024. Consistent with overall market conditions, rates were very modestly down, but there was significant pressure on signings. The nearly 50% strengthening of the U.S. dollar versus the yen since the beginning of 2021 no doubt affects the overall supply-demand balance for Japanese catastrophe reinsurance. A key personal focus has been to meet with our innovations portfolio companies. Our Head of Innovations, Brian O’Reilly, and I met with the leaders of a number of our portfolio companies during the quarter, having a chance to understand their unique value propositions and their potential for profitable growth. I’m impressed with the quality of these opportunities and the excellent work our team performs in identifying, selecting, guiding, and nurturing these innovative new businesses. Finally, in our March call, I provided some initial impressions of Greenlight Re and noted that Greenlight Re is in good shape and has exciting prospects. I would like to reiterate that impression. Now I’ll turn the call over to David Einhorn.
David Einhorn:
Great. Thanks, Greg, and good morning, everyone. The Solasglas fund returned 5.2% in the first quarter. Our loan portfolio added 4.4%. The short portfolio was flat, and macro added 1.8%. During the quarter, the S&P 500 Index advanced 10.6%. The largest positive contributors were long investments in Green Brick Partners and Tenet Healthcare, an interest rate-related position, and gold. The largest detractors were long positions in CONSOL Energy and PENN Entertainment and a single name short position. Green Brick Partners advanced 16% after the company announced strong fourth-quarter results. The company continues to perform well in its core markets and appears well-positioned for another strong year in 2024. Tenet Healthcare rose 39%, benefiting from ongoing strength in health care utilization and the sale of additional hospitals at premium multiples. Early in the quarter, we established a new macro position by selling December 24 SOFR futures. At the time, the market expected the Federal Reserve to cut short-term interest rates between 6 and 7x this year. The position benefited as the market came around our view by the end of the quarter with only about 2 to 3.25 basis point cut priced again for 2024. We trimmed the position to take some profits. Gold was also a significant contributor as the price advanced more than 8% during the quarter. CONSOL Energy shares fell 17% due to moderately lower coal pricing early in the quarter and the collapse of the Francis Scott Key Bridge in Baltimore Harbor later in the quarter. The bridge collapse will prevent CONSOL from exporting coal from its local terminal in the near term, but we do not believe this to have long-term relevance for this investment. I will note this is the first time in many years where we saw risk aggregation on both sides of the balance sheet, which is a rare occurrence. On the other hand, CONSOL has insurance for the interruption and should be able to recoup much of its loss. We established a long position in PENN Entertainment, an operator of land-based casinos and ESPN Bet, its new online gaming business. The shares declined 30% during the first quarter as the market appears to be concerned about the amount of marketing spend the company undertook to acquire customers while launching ESPN Bet. We believe the launch was successful and the company acquired 1 million customers in less than 2 months and guided to profitability a year earlier than previous guidance. Last quarter, we referred to a new large position we were building in an undisclosed materials company. We unveiled this position as Solvay, a Belgian chemicals company at an investment conference in early April. After undergoing a corporate restructuring, which spun out of a Specialty Chemicals division as SYENSQO, the new Solvay’s key products are soda ash and Bicar as well as peroxide, silicas, flooring, earth formulations, and solvents. We expect Solvay to earn near EUR 7 per share in 2028, and we acquired our position for less than…
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